TRANSCRIPT: Prime Minister, John Key interviewed on TV ONE’s Breakfast at 7:20am this morning.

The full length video interview can also be seen on tvnz.co.nz at, http://tvnz.co.nz/Breakfast

John Key Interviewed By Petra Bagust

Petra: Well the country's heading towards the biggest budget deficit in history and modest public services will be without new spending. The perfect time for Labour to strike? No. The Opposition's embroiled in sleaze and scandal. Joining us now is Prime Minister John Key, good morning John

John: Good morning Petra.

Petra: This talk about Darren Hughes and the distraction that it is from important job at hand as far as the budget is concerned, what's the correct thing to do here, what is the lesson that needs to be learnt?

John: Well I can't tell you the lessons on the Labour side cos that’s ultimately a matter for them. All I can tell you on our side is that you're quite right actually, we're facing the rebuild of Christchurch, it's a significant event, obviously a major event. We're trying to put to bed a budget which is gonna be put together in difficult circumstances, because we don’t have a lot of spare cash and we need to pay for the earthquake, and there's many other issues on our plate. So from our point of view that’s what we're focused on and then we just have to leave Labour to focus on their own issues.

Petra: But people in the media are focusing on this issue, even if it's just to say that it's a distraction. What's the right thing to do when a Police investigation is launched, should there be a procedure in place here?

John: Well again each leader has to trust their own instincts.

Petra: So you don’t think there's a case for making sort of a procedural understanding?

John: Well I don’t think you can do that when you're running your own political party. I mean one of the things that the public does is ultimately has a look at a leader, works out how they react in certain circumstances, makes their own assessment of it, and that’s what the public will do here. The public will make their own assessment of the way that I handle issues and the way Phil Goff handles issues, and you know there are always circumstances, things that don’t necessarily get in the public domain, but you know people over time get their own sense of what's working and what's no I guess.

Petra: Has the Hughes saga been instructive for you at all as a party leader?

John: Oh look it just shows you I think the scrutiny that Members of Parliament are under really. It's not the same as it is for everyone else, I mean there is name suppression that operates in New Zealand. Now sometimes we think that that name suppression net is case too wide and the government's looking at narrowing that, but I think in the practical sense when you're a Member of Parliament that won’t apply. I mean people will remember when they picked up the Dominion Post or the Herald on Wednesday morning, it was a very small rather innocuous story about an inch long and a quarter of an inch wide, but once that was in the paper then you knew the floodgates would open, and that’s the difference between being a Member of Parliament and probably anybody else involved in that kind of situation.

Petra: Alright well let's talk about the budget. Biggest budget deficit in history rumoured. Now that’s a big admission from Bill English. So people are gonna look at this government and think well has the economy been mismanaged? What's to say people aren’t right with that wondering?

John: Yeah, so let's understand why it will be the biggest budget deficit in history as I understand it, certainly in nominal terms, I haven’t gone back and had a look as a percentage of the economy, but the reason for that is because of the earthquake. I mean ultimately Treasury books the cost of that earthquake, the difference between our insurance and what the final cost will be in our accounts this year. So when you see our accounts it will reflect that. Secondly we had the first earthquake which knocked our accounts around again, you know we had less revenue coming in, we had more expenditure going out. And the third thing was that you know we've been in the back of this recession and the government had a couple of options there. It was either slash and burn things like welfare payments and Working for Families, and put interest back on student loans, or say well look we don’t carry a lot of debt as a government, we'll ride our way through that. Now that’s what we've chosen to do. I think it's been the right course of action, but we have been tightening up dramatically because we need to tighten up, and we can't let debt get out of control, and that’s been the message all of this year.

Petra: So what about reversing some of those tax cuts for the higher end. IMF, International Monetary Fund, says that we need to raise more money from tax. So how can we do that, because it's no to land tax, no to capital gains tax, no to reversing the tax cuts. What can you do?

John: Well firstly the IMF actually didn’t argue the case for reversing what we'd done in tax cuts, that was a proposition some people put out there but it wasn't actually what they said. In fact they actually applauded our tax cuts because they want a system that incentivises people to work. You're quite right they did say you should broaden the tax base for the bigger capital gains tax or a land tax. We don’t agree with that. Look if we put a land tax on today the price of your house is dramatically falling. That is the nature of a land tax, because that’s exactly what it does. Economically it says your house is worth less to you now than it was and you'll be constantly paying for it. So we don’t want to undermine housing in New Zealand. Capital gains tax, well you know whether they really work or not that’s a big debate, we have one in New Zealand but not one spread as widely. But you know if you go back to our personal tax cuts, yes we did cut personal taxes, we also increased GST and we also cut expenditure in other areas that in fact didn’t cost the government any money, it was a switch in the way we collected revenue, and again we think that’s a better model. We think it's better that you go out to work, you make your money, you have greater choices on how you spend it, and actually we didn’t want to have a situation where people could go out there and wrought the system, and you really had that happening when there was a difference between the top personal rate and the trust rate in New Zealand.

Petra: Right so that really is just we'll wait and see with the budget.

John: Well what's going to happen in the budget, I mean it's reasonably clear is that we need to pay for the earthquake, it'll get booked to the account straight away. I think we do need to put more money in health and education, so we're gonna do that, and justice, and we'll find savings in other areas. And as we sort of discussed last week, there's really only a couple of options. One is you keep that debt forever – that’s not acceptable I think to New Zealand or the public, and you’ve gotta pay interest on it. We send everyone a bill in the form of a levy and that will come into incomes at quite levels, $40,000 and above, and you'll pay it for decades frankly. Or the third option is we are more careful with our expenditure, and yes I know that has some impacts on people, but of all the options we have none of which are good, in our view that’s the best one.

Petra: Have you watched England with interest and the protests happening over there?

John: I have yes, saw them last night on TV, I mean look I think it's not for me to critique the English economy and their response, but their situation is worse, and some of their responses are more intense because their situation is worse. So they're trebling tertiary fees in three years. No one's arguing about in New Zealand us doing anything like that. We've just gotta be a lot more careful with our expenditure.

Petra: Protests and demonstrations seem to be de rigeur though so we'll have to watch this space.

John: We'll get some I mean you typically always get them, I mean if you think about early childhood education remember there were protests about that. Actually the government's putting more money in the early childhood this year than we did last year, but we changed the nature of some of those payments and that did leave to a protest, and that’s a democracy for you.

Petra: Can we quickly talk about the new government agency in charge of the recovery in Christchurch. Had you guys settled on Martin Dunne?

John: No, so the decision is made by the State Services Commissioner, and it is true that his name was in the frame, he was one of a number of people we were looking at to run the interim agency, and that was because Martin's going to Australia to be our High Commissioner, he's going to do a fabulous job there like he has in Canberra. But in the end the decision was made not to progress and that’s a matter for the State Services Commissioner, but there will be an announcement and there will be a person named this week.

Petra: Okay, so do you know who it is, have you decided?

John: Yes.

Petra: Ooh that’s good, I'm glad somebody does, there seems to be a bit of argy bargy there.

John: Oh no, we know

Petra: And just that concern that it's gonna create an extra level of bureaucracy, can you speak to that? What reassurance can be offered to the people of Christchurch?

John: If we want action in Christchurch, I think that’s what everybody wants, and if we overlay on that the significance of the event, it's a major event, so it's years of rebuilding, it's a huge amount of planning, we can't do that with (a) the resources of the Council, because no council has those resources, nor can we have our Minister, in this case Gerry Brownlee, and say there's nobody to help you. So it is an agency and it's a coordinating agency. So I think you need to have to have that. It's not a matter of getting in the way, it's a matter of how do you execute the resources of government and focus them on the same and coordinated outcome in Christchurch, and if you don’t have that sort of support no Minister can do their job. So actually we've shown what it looks like, and had widespread discussions with Christchurch City Council and others, and they are very supportive of what we're doing.

Petra: Alright all the best with that thank you. John Key, Prime Minister.

ENDS

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